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What to Expect from the Q1 2022 Earnings Season

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The March quarter still has a couple of weeks left, but the 2022 Q1 earnings season already started. We are referring to the recent quarterly reports from AutoZone (AZO - Free Report) , Costco (COST - Free Report) and Oracle (ORCL - Free Report) . We have another four S&P 500 members on deck to report results this week, including Lennar (LEN - Free Report) on Wednesday (March 16th) and FedEx (FDX - Free Report) on Thursday (3/17).

All of these reports are for their fiscal quarters ending in February, which we count as part of our March-quarter tally. JPMorgan and the other big banks will spearhead the March-quarter reporting cycle on April 13th.

The geopolitical uncertainty in the wake of the Ukraine situation adds to the market’s existing worries about inflation and supply-chain challenges that have been recurring themes in recent months. The addition of geopolitical tensions to the mix has direct implications for the inflation outlook through higher prices for energy and other commodities.

We knew all along that earnings growth was expected to decelerate significantly in the current and coming quarters, after remaining very strong in the preceding periods. But the outlook for earnings had started easing even before the recent geopolitical developments. We saw this in the revisions trend, which had been mixed at best.

The expectation currently is for 2022 Q1 estimates to be up +3.7% from the same period last year on +9.8% higher revenues. In other words, current bottom-up estimates reflect compression in margins, which is in line with the aforementioned inflationary trends.

The chart below shows how estimates for 2022 Q1 have evolved in recent months.

Zacks Investment Research
Image Source: Zacks Investment Research

For full-year 2022, the expectation is of earnings growth +7.3% on +6.2% revenue growth. This would follow the +49.9% earnings growth in 2021.

Full-year 2022 earnings estimates have modestly inched up since the start of the year, with total S&P 500 earnings up +1.4% since the start of January. There is a lot of cross-currents at the sector level, with estimates going down for 10 of the 16 Zacks sectors and going up for the rest. In fact, it is the positive revisions to the Energy sector that are offsetting the estimate cuts in the aggregate.

Excluding the positive revisions to the Energy sector, total S&P 500 earnings for 2022 would be down -11.9% since the start of January. The biggest declines have been for the Consumer Discretionary, Transportation and Utilities sectors.

While on the topic of estimate cuts, it is worth pointing out that FedEx (FDX - Free Report) , which part of our Transportation sector and will be reporting quarterly results after the market’s close on March 17th, suffered modest estimate cuts to its fiscal February quarter. The current Zacks Consensus EPS for FedEx of $4.70 is down from $4.74 a month back and $4.78 two months back.

Estimates for other transportation players like the airlines have come down a lot more, as they are on the receiving end of the oil price hike that’s benefiting the Energy sector.

The chart below shows quarterly net margins for Q1 in the context of where margins have been in recent quarters and what is imbedded in current estimates for the coming quarters.

Zacks Investment Research
Image Source: Zacks Investment Research

For Q1, margins are expected to be below the year-earlier level for 9 of the 16 Zacks sectors, with strong margin gains for three sectors (Energy, Transportation and Basic Materials).

Zacks Investment Research
Image Source: Zacks Investment Research

As you can see in the table above, the growth picture has shifted materially for the Finance and Technology sectors, the two biggest earnings contributors to the index. Total Finance sector earnings are expected to be down -17.6% from the same period last year on +2.4% higher revenues, while Tech sector earnings are expected to be down -0.6% in Q1 on +7.6% higher revenues.

The chart below shows the quarterly earnings estimate for Q1 in the context of the actual quarterly totals in the preceding 8 quarters and estimates for the following three quarters.

Zacks Investment Research
Image Source: Zacks Investment Research

The chart below presents the earnings and revenue growth picture on a quarterly basis, with expectations for 2022 Q1 contrasted with the actual growth achieved over the preceding four quarters and estimates for the following three.

Zacks Investment Research
Image Source: Zacks Investment Research

The Q1 Earnings Season Scorecard

The Q1 earnings season will really get going with the big banks reporting March quarter results in mid-April. But the early reports have come out already, with results from AutoZone (AZO - Free Report) , Costco (COST - Free Report) and Oracle (ORCL - Free Report) for their respective fiscal quarters ending in February qualify.

We will have seen such Q1 results from almost two dozen S&P 500 members by the time JPMorgan (JPM - Free Report) comes out with quarterly results on April 13th.

For the three index members that have reported Q1 results already, total earnings are down -1.4% from the same period last year on +14.2% higher revenues, with 66.7% beating EPS estimates (two out of the three) and all of them beating revenue estimates.

Not to make too big of a deal out of these very early results, but the comparison charts below put the 2022 Q1 earnings and revenue growth rates for these three index members in the context of what we had seen from the same group of companies in other recent periods.

Zacks Investment Research
Image Source: Zacks Investment Research

The chart below shows the comparable picture on an annual basis.

Zacks Investment Research
Image Source: Zacks Investment Research

For a detailed look at the overall earnings picture, including expectations for the coming periods, please check out our weekly Earnings Trends report >>>>A Rising Energy Sector Offsets Declines Elsewhere